Executives at top-performing manufacturing firms understand the value of setting specific and challenging sales goals for their salespeople. They strive to set goals that are fair and realistic, and motivate the sales force to do their very best. Achieving this balance, however, is far from easy -- especially considering the uncertainty in the manufacturing industry today.
COMMON GOAL SETTING CHALLENGES
Sales goals that are too difficult, too easy, or not assigned fairly across the sales force can have an adverse impact on sales force motivation, costs and results. Here are three common issues that can derail the best-intentioned plans:
1. The Company Goal Is Too High
If a company goal is overly optimistic, it’s likely that territory sales goals will be high across the board and that a large proportion of the sales force will experience a loss of motivation.
Unfortunately, sales leaders may not have control over how challenging their sales goals are. Company sales forecasts may be driven by corporate expectations and handed down to the sales force from the executive suite.
The goals that sales leaders feel are realistic and appropriate from a sales force motivation perspective may be lower than the goals that top management insists are necessary from a financial perspective. Sustaining sales force motivation when there is a substantial gap between what the sales force feels it can achieve and what top management demands is a daunting challenge.
2. The Company Goal Is Too Low
Goals that are too easily achieved not only cost the company more money in the short term, but also have an undesirable impact on future sales force expectations. An occasional “bluebird” can be motivating, but when a sales force earns high incentive pay without high levels of effort, an entitlement culture can develop -- and such a culture may be very hard to change. Salespeople expect the high pay for moderate work to continue, making it difficult for the company to set more challenging goals in the future without adversely affecting morale.
3. Goals Are Not Allocated Fairly Among Salespeople
Frequently, sales leaders fail to allocate reasonable company goals appropriately across salespeople, giving some salespeople goals that are too easy to reach and giving others goals that are impossible to achieve. When weak performers systematically get goals that are less challenging than the goals set for high performers, the company’s best salespeople are not rewarded enough for their hard work and superior results. And strong performers are likely to observe that some poor performers are making more money because of their low goals. This imbalance in the allocation of goals sends the wrong message to salespeople and has a negative impact on morale.
ASSESS AND REVISE GOALS FOR BETTER PERFORMANCE
Sometimes, an unpredictable market or the introduction of a new product may mean that executives are not in a position to set accurate sales goals at the outset of their planning cycle. This is why it is crucial for executives to periodically assess company sales goals and be prepared to self-correct quickly in order to maintain sales productivity and profitability. Here are some common issues that may surface after a review of sales goals and steps that executives can take to address them.
1. When Company Goals Are Too High
Many companies want to maintain the integrity of the goal-setting process and therefore will keep the original goals intact, even when it is clear that they cannot be achieved. But it is important to keep the sales force motivated to prevent further sales shortfalls and the loss of top-performing salespeople. Spiffs and add-on incentive features are good ways to overcome the effects of overly aggressive goals.
If an executive wants to create special incentive plan features to compensate for inappropriately high goals, he or she must determine the most reasonable goals using the latest data and use that information to design the supplemental or new element.
For example, if the latest market trends and sales data suggest that reasonable goals would be at a level equal to 80 percent of actual goals, consider offering salespeople an added bonus for achieving 80 percent of goal. Ironically, re-goaling may actually increase the integrity of the process.
2. When Company Goals Are Too Low
If the incentive period is fairly short (a quarter or less), it is usually best to absorb the temporary cost increase. The negative impact on morale that results from increasing goals in midstream is greater than the cost of paying the sales force a windfall gain. At the same time, it is important to carefully manage sales force expectations for the future.
Executives can start by communicating to salespeople that the gain is a windfall that will not continue in future incentive periods. They can then implement goals that are more realistic for the next incentive period.
If the incentive period is longer (a year), the cost of paying the sales force a windfall gain over a long period of time may be very significant; in fact, many companies choose to increase sales force goals in midstream while managing the adverse effect on morale.
3. When It Is Hard to Tell What the Company Goal Should Be
Sometimes even the best data and the most respected forecasting techniques cannot overcome the uncertainty inherent in setting company goals. However, there are several ways to accommodate goal setting in highly unpredictable selling environments:
• Set goals with short time frames. If a goal turns out to be unrealistic, the impact of the error is minimal.
• Set goals that reward a realistic range of performance. For example, define a “success” range of goal attainment that begins at 80 percent of the target sales level.
• Use earnings caps or decelerators to ensure that the company will not have to pay out excessive unearned incentive money if company goals were set too low.
• Design IC payout curves that adjust so that sales force motivation stays high when company goals are too high and undeserved incentive payouts are minimized when company goals are too low. For example, link an individual’s incentive payout both to her own territory performance relative to goal and to her goal attainment relative to the rest of the sales force.
4. When Goals are Not Allocated Fairly Across Territories
When allocating goals to territories, some manufacturing executives rely on input from sales managers and salespeople. Others rely on formulas (sometimes very complex ones) to set goals. The best allocation methods typically rely on a combination of data analysis and sales force input, with the relative importance of each being determined by the company’s selling situation, analytic capabilities and the availability of data. When it is possible to use data-driven formulas as part of the goal-setting process, territory goals are generally more objective, explicit and fair.
CHOOSING THE RIGHT GOAL-SETTING METHOD
There are many possible goal-setting formulas and approaches. The best ones consider both historical territory sales and territory market potential. Acknowledging differences in market potential between territories enhances goal fairness, especially for top performers who may have already captured a large portion of the potential in their territory. While direct measures of market potential are not available for all industries, good surrogate measures can almost always be developed using creative approaches.
Further, when manufacturing sales leaders are selecting a goal-setting approach, there is usually a trade-off between simplicity and accuracy. A complex formula that creates very realistic goals can be both difficult and costly to implement and hard to explain to the sales force. Sometimes a simpler process, although less exact, creates a better result because the sales force can understand and embrace the resulting goals more readily.
While setting fair and accurate goals may be a challenge and corporate approaches to goal-setting may vary, effective goal-setting and monitoring is crucial to keeping the sales force motivated and productive in today’s economy -- and beyond.
Andris A. Zoltners, Prabhakant Sinha and Sally E. Lorimer are co-authors of “Building a Winning Sales Force: Powerful Strategies for Driving High Performance.” Zoltners is professor of marketing at the Kellogg School of Management at Northwestern University, where he has been a member of the faculty for more than 30 years. He and Sinha founded ZS Associates, a global business consulting firm, in 1983. They currently serve as the firm’s co-chairmen. Lorimer is a business writer and a former ZS principal.